Benefit Corporations: a US movement underway to Brazil

‘People using business as a force for good’, that is the vision of “benefit corporations”, a new type of company that uses the power of business to solve social and environmental issues. The benefit corporation movement was started in 2006 by B Lab, a NGO headquartered in the U.S., with the mission to “redefine success in business”. This NGO confers the B Corporation certification to companies which are committed to social and environmental responsibility and meet the highest standards of transparency, accountability and performance. The idea evolved and several U.S. states, including Delaware, where 50% of all publicly-traded companies are concentrated, have passed benefit corporation legislation, creating in fact a new corporate form for for-profit entities, which wish to consider society and the environment in addition to profit in their decision making process.

Although both certified benefit corporations and benefit corporations seek to act as agents of change in the way business is made, they should not be confused. Certified B corporations have received a certification by B Lab, while benefit corporations operate in those states, which have introduced special benefit corporation legislation. A corporation can be a benefit corporation without being certified by B Lab and vice versa.

The need for this new corporate form exists, because U.S. courts generally recognize and reinforce the theory of shareholder wealth maximization. This concept makes the maximization of shareholder value the director’s duty. While the extent of this duty remains in dispute, the general concept is that directors cannot pursue a business strategy that forgoes shareholder wealth maximization. Consequently, directors who make decisions, which cannot be justified as shareholder wealth maximization oriented, are at risk of being sued for a breach of duty.

The benefit corporation statutes effective in 28 U.S. states differ from each other, but all of them require benefit corporations to define a general or specific, social or environmental goal in their bylaws. Directors are obliged to consider those goals in their decision-making processes and are protected against shareholder action if those goals are pursued to the financial detriment of the corporation’s shareholders. The overall social and environmental performance of the benefit corporation must be assessed in an annual benefit report made available to the public. In various states, shareholders and directors are authorized to pursue “benefit enforcement proceedings”, to ensure that a corporation is creating the intended social and environmental impact. All of these provisions warrant that shareholders have certainty that their investments advance socially and environmentally as well as financially.

In Brazil, the law does not yet provide for a specific corporate form, which would resemble a US-type benefit corporation. Brazilian legislation determines in its Constitution and corporate law that corporations have a social function, establishing a balance between private and public interests, in addition to providing clear environmental protection mechanisms and principles. Directors and officers, according to LSA (Law 6404/1976), have the duty to undertake every effort to fulfill the corporate purpose, including the requirements of the public at large and the social function of the corporation. While for Brazilian corporations the corporate purpose limits the corporate activity and the means to exercise it, the needs and requirements of the public and the corporation’s social function should always be considered. However, the concept of the social function has not been largely applied as an instrument to question the decision-making of directors and there are reasons to believe that the application of the concept of the social function in the courts is not sufficiently safe to incorporate the activities of benefit companies.

Sistema B, the South American counterpart of B Lab, which has already certified over 40 Brazilian B corporations, advocates for the passing of specific benefit corporation laws, which grant legal recognition and protection to such corporations.
Furriela Advogados is a member of the Legal Group, which supports Sistema B in the creation of a favorable ecosystem for B Corporations in Brazil through the study and promotion of solutions in the legal field.

Alexandra Wolff – Furriela Advogados